1988 (3) TMI 102 - AT - Income Tax

Summary

Issues:
- Disallowance of interest amount on loan debited to profit & loss account
- Disallowance of claim for interest and unabsorbed depreciation
- Unity of control in business activities
- Allowance of interest paid on borrowed funds as business expenditure
- Claim for set off of unabsorbed depreciation of earlier years

Analysis:

The case involved departmental appeals against the CIT(A)'s order regarding disallowance of interest amount on a loan, as well as disallowance of claims for interest and unabsorbed depreciation. The assessee company, engaged in coal trading and colliery business, maintained a combined account for its activities. The CIT(A) found a close interconnection among the various business activities of the assessee.

The CIT(A) held that interest paid on borrowed funds was allowable as a business expenditure under section 36(1)(iii) due to the unity of control in the assessee's business activities. The CIT(A) directed the ITO to allow the interest payment as a business expenditure, citing relevant Supreme Court decisions.

Regarding the claim for set off of unabsorbed depreciation of earlier years, the CIT(A) allowed the claim based on decisions of the Allahabad and Bombay High Courts. The CIT(A) directed the ITO to adjust the unabsorbed depreciation against the income for the relevant assessment years as per section 32(2).

The Tribunal upheld the CIT(A)'s decision, noting that the facts found by the CIT(A) were not disputed. The Tribunal clarified that liabilities related to the colliery business were not taken over by the government upon nationalization. The Tribunal supported the CIT(A)'s findings on the allowability of interest paid on borrowed funds and the set off of unabsorbed depreciation based on relevant legal precedents.

In conclusion, the Tribunal dismissed the appeals, affirming the CIT(A)'s order on the issues of interest payment and set off of unabsorbed depreciation. No additional points were raised during the appeals.